Discriminant analysis

Discriminant analysis is a statistical technique used to classify data into two or more groups based on
a set of predictor variables. The goal of discriminant analysis is to determine which variables are most
important in distinguishing between the different groups.

There are two types of discriminant analysis: linear discriminant analysis (LDA) and quadratic
discriminant analysis (QDA). LDA assumes that the predictor variables have a multivariate normal
distribution, and that the covariance matrices for each group are equal. QDA relaxes these
assumptions, allowing for different covariance matrices for each group.

In LDA, the predictor variables are used to create a linear combination of variables that best separates
the groups. This linear combination is called the discriminant function. The discriminant function can
then be used to classify new observations into one of the groups.

QDA works similarly to LDA, but instead of assuming equal covariance matrices for each group, it
estimates a separate covariance matrix for each group. This allows QDA to capture more complex
relationships between the predictor variables and the groups.

Discriminant analysis has many applications, including in marketing, finance, and healthcare. It is
often used to identify customer segments, predict financial distress, or diagnose medical conditions.
Binary logit models of qualitative choice
Binary logit models are a type of statistical model used to analyze qualitative choice data where the
response variable is binary, meaning it can take one of two values, such as "yes" or "no", "success" or
"failure", or "1" or "0". The binary logit model is commonly used in fields such as economics,
marketing, and psychology to understand and predict consumer behavior, voting patterns, and other
types of decision-making.

In a binary logit model, the response variable is modeled as a function of one or more predictor
variables, which can be categorical or continuous. The model assumes that the log odds of the
response variable being a "success" or a "yes" are a linear function of the predictor variables, with a
constant term (the intercept) and coefficients for each predictor variable.

Mathematically, the binary logit model can be represented as follows:

logit(p) = ln(p / (1 - p)) = β0 + β1x1 + β2x2 + ... + βpxp

where p is the probability of the response variable being a "success", β0 is the intercept, β1, β2, ..., βp
are the coefficients for the predictor variables x1, x2, ..., xp, respectively.

The logit function transforms the probability p into the log odds of a "success", which is a continuous
variable ranging from negative infinity to positive infinity. The coefficients in the model represent the
change in the log odds of a "success" for a one-unit increase in the corresponding predictor variable,
holding all other variables constant.

To estimate the coefficients in the model, maximum likelihood estimation is commonly used. The
likelihood function is the probability of observing the binary responses given the predictor variables
and the model parameters. The maximum likelihood estimates of the coefficients are the values that
maximize the likelihood function.

Once the model is fitted, it can be used to make predictions on new data by plugging in the values of
the predictor variables and computing the probability of a "success". The predicted probabilities can
then be used to make decisions or to evaluate the performance of the model.
Multinomial Logit

Multinomial Logit, also known as multinomial logistic regression, is a statistical model used to
analyze relationships between categorical dependent variables and one or more independent variables.
It is an extension of binary logistic regression, which deals with only two categories.

In multinomial logit, the dependent variable has more than two categories, and the model estimates
the probability of each category based on the values of the independent variables. The model assumes
that the log odds of each category are a linear combination of the independent variables.

The model's output is a set of coefficients for each independent variable, which represent the change
in the log odds of each category for a unit change in the independent variable while holding all other
variables constant. These coefficients can be used to predict the probability of each category for a
given set of independent variables.

Multinomial logit is commonly used in fields such as marketing, political science, and social sciences
to analyze and predict choices among multiple options, such as brand preference, voting behavior, and
consumer choices.

Nested logit
Nested logit is a statistical model used in econometrics to analyze discrete choice data, which involves
a decision among a set of alternatives. It is an extension of the multinomial logit model that accounts
for the correlation between choices within groups or "nests" of alternatives.

In a nested logit model, the alternatives are organized into groups based on some shared characteristic
or attribute. Each group is called a nest, and the alternatives within a nest are assumed to be more
closely related to each other than to the alternatives in other nests. This correlation within nests is
captured by introducing a nesting structure into the choice model.

The nested logit model assumes that there are two levels of decision-making. At the top level,
individuals choose a nest of alternatives, and at the lower level, they choose a specific alternative
within the chosen nest. The model allows for the possibility that the decision to choose a nest is made
independently of the specific alternative chosen within the nest.

The nested logit model is widely used in transportation, environmental, and marketing research,
where choices are often organized into hierarchical structures. It has also been applied in other fields
such as health care, education, and labor economics.